The Relationship between Default Risk and Non-Financial Information

The purpose of this paper is to examine whether there is any significant shift in default risk on corporate social responsibility(CSR) as a proxy measure of non-financial information on KOSDAQ firms. Default risk affects virtually every financial contract. Based on the argument that CSR would play the role of reducing conflicts between firms and society, this study hypothesized that corporate social responsibility would be concerned in the firms credit rating as an alternative measure of default risk. Specifically, the firms with higher CSR activities are predicted to have higher credit rating, higher firm values than those with lower CSR activities. This study examined theses hypotheses, using a sample of 448 on Kosdaq firms over three-year period (2010-2012). An ESG(Environment, Social, Governance) index published by Korean Corporate Governance Service (KCGS) was used as the measure of corporate social responsibility. The results of this study find that the firms with high corporate governance performance exhibit better credit rating as a proxy variable of default risk. These results are robust across different measures of variables and testing methodologies.